XFRA:JOU Journal Communications Inc Class A Quarterly Report 10-Q Filing - 3/25/2012

Effective Date 3/25/2012

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:  March 25, 2012
or

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                                                 to                                                                                                                                   
Commission File Number:                                                           1-31805                                                                                                                       
 
JOURNAL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin
 
20-0020198
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
333 W. State Street, Milwaukee, Wisconsin
 
53203
(Address of principal executive offices)
 
(Zip Code)
(414) 224-2000
Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x   No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x   No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  ¨
Accelerated Filer  x
Non-accelerated Filer   ¨
Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨   No x

Number of shares outstanding of each of the issuer’s classes of common stock as of April 27:

Class
 
Outstanding at April 27, 2012
Class A Common Stock
 
43,470,229
Class B Common Stock
 
7,031,262
Class C Common Stock
 
3,264,000
 


 
 

 

JOURNAL COMMUNICATIONS, INC.

INDEX

     
Page No.
Part I.
Financial Information
 
       
 
Item 1.
Financial Statements
 
       
   
2
       
   
3
       
   
4
       
   
5
       
   
6
       
   
7
       
   
8
       
 
Item 2.
21
       
 
Item 3.
30
       
 
Item 4.
30
       
Part II.
Other Information
 
       
 
Item 1.
30
       
 
Item 1A.
30
       
 
Item 2.
31
       
 
Item 3.
31
       
 
Item 4.
31
       
 
Item 5.
31
       
 
Item 6.
32

 
 

 
PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

JOURNAL COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)

   
March 25, 2012
   
December 25, 2011
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 2,243     $ 2,418  
Investments of variable interest entity
    500       500  
Receivables, net
    48,689       56,695  
Inventories, net
    3,084       1,766  
Prepaid expenses and other current assets
    4,849       3,877  
Syndicated programs
    2,584       2,822  
Deferred income taxes
    3,313       3,593  
Total Current Assets
    65,262       71,671  
                 
Property and equipment, at cost, less accumulated depreciation of $243,988 and $239,725, respectively
    165,661       168,200  
Syndicated programs
    4,311       4,457  
Goodwill
    8,670       8,670  
Broadcast licenses
    81,547       81,547  
Other intangible assets, net
    21,019       21,400  
Deferred income taxes
    55,493       57,236  
Other assets
    4,423       4,544  
Total Assets
  $ 406,386     $ 417,725  
                 
Liabilities And Equity
               
Current liabilities:
               
Accounts payable
  $ 20,174     $ 20,516  
Accrued compensation
    7,721       11,888  
Accrued employee benefits
    6,409       6,217  
Deferred revenue
    15,082       14,662  
Syndicated programs
    3,031       3,436  
Accrued income taxes
    344       2,740  
Other current liabilities
    5,348       6,093  
Current portion of long-term liabilities
    312       382  
Total Current Liabilities
    58,421       65,934  
                 
Accrued employee benefits
    89,735       90,176  
Syndicated programs
    5,153       5,527  
Long-term notes payable to banks
    37,725       41,305  
Other long-term liabilities
    9,066       8,595  
Equity:
               
Preferred stock, $0.01 par – authorized 10,000,000 shares; no shares outstanding at March 25, 2012 and December 25, 2011
    --       --  
Common stock, $0.01 par:
               
Class C – authorized 10,000,000 shares; issued and outstanding: 3,264,000 shares at March 25, 2012 and December 25, 2011
    33       33  
Class B – authorized 120,000,000 shares; issued and outstanding: 7,072,692 shares at March 25, 2012 and 7,214,374 shares at December 25, 2011
    66       66  
Class A – authorized 170,000,000 shares; issued and outstanding: 43,429,799 shares at March 25, 2012 and 43,778,922 shares at December 25, 2011
    434       438  
Additional paid-in capital
    254,815       257,552  
Accumulated other comprehensive loss
    (52,598 )     (52,982 )
Retained earnings (deficit)
    2,372       (83 )
Total Journal Communications, Inc. shareholders’ equity
    205,122       205,024  
Noncontrolling interest
    1,164       1,164  
Total Equity
    206,286       206,188  
Total Liabilities And Equity
  $ 406,386     $ 417,725  

See accompanying notes to unaudited condensed consolidated financial statements.

 
2


Unaudited Condensed Consolidated Statements of Operations
 (in thousands, except per share amounts)

   
First Quarter Ended
 
   
March 25, 2012
   
March 27, 2011
 
             
Revenue:
           
Broadcasting
  $ 44,374     $ 42,109  
Publishing
    38,021       41,800  
Corporate eliminations
    (129 )     (48 )
Total revenue
    82,266       83,861  
                 
Operating costs and expenses:
               
Broadcasting
    23,033       21,935  
Publishing
    26,152       27,645  
Corporate eliminations
    (129 )     (48 )
Total operating costs and expenses
    49,056       49,532  
                 
Selling and administrative expenses
    27,470       28,321  
Total operating costs and expenses and selling and administrative expenses
    76,526       77,853  
                 
Operating earnings
    5,740       6,008  
                 
Other income and (expense):
               
Interest income
    5       18  
Interest expense
    (733 )     (1,080 )
Total other income and (expense)
    (728 )     (1,062 )
                 
Earnings from continuing operations before income taxes
    5,012       4,946  
                 
Provision for income taxes
    2,093       1,912  
                 
Earnings from continuing operations
    2,919       3,034  
                 
Earnings from discontinued operations, net of $0 and $221 applicable income tax provision, respectively
    --       341  
                 
Net earnings
  $ 2,919     $ 3,375  
                 
Earnings per share:
               
Basic – Class A and B common stock:
               
Continuing operations
  $ 0.05     $ 0.05  
Discontinued operations
    --       --  
Net earnings
  $ 0.05     $ 0.05  
                 
Diluted – Class A and B common stock:
               
Continuing operations
  $ 0.05     $ 0.05  
Discontinued operations
    --       --  
Net earnings
  $ 0.05     $ 0.05  
                 
Basic and diluted – Class C common stock:
               
Continuing operations
  $ 0.19     $ 0.19  
Discontinued operations
    --       --  
Net earnings
  $ 0.19     $ 0.19  

See accompanying notes to unaudited condensed consolidated financial statements.

 
3


JOURNAL COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Statements of Comprehensive Income
 (in thousands)

   
First Quarter Ended
 
   
March 25, 2012
   
March 27, 2011
 
             
             
Net earnings
  $ 2,919     $ 3,375  
                 
Other comprehensive income, net of tax:
               
Change in pension and postretirement obligation, net of tax of $251 and $127, respectively
    384       197  
                 
Comprehensive income
  $ 3,303     $ 3,572  

See accompanying notes to unaudited condensed consolidated financial statements.

 
4


JOURNAL COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Statement of Equity
For the First Quarter Ended March 25, 2012
(in thousands, except per share amounts)

                             
Additional
   
Accumulated
Other
     
Retained
             
   
Preferred
   
Common Stock
   
Paid-in-
   
Comprehensive
    Earnings    
Noncontrolling
       
   
Stock
   
Class C
   
Class B
   
Class A
   
Capital
   
Loss
   
 (Deficit)
   
Interest
   
Total
 
                                                       
Balance at December 25, 2011
  $ -     $ 33     $ 66     $ 438     $ 257,552     $ (52,982 )   $ (83 )   $ 1,164     $ 206,188  
                                                                         
Net earnings
                                                    2,919               2,919  
Comprehensive income
                                            384                       384  
Class C dividends declared ($0.142 per share)
                                                    (464 )             (464 )
Issuance of shares:
                                                                       
Conversion of class B to class A
                    (2 )     2                                       -  
Stock grants
                    3               15                               18  
Employee stock purchase plan
                                    148                               148  
Shares purchased and retired
                            (6 )     (2,926 )                             (2,932 )
Shares withheld from employees for tax withholding
                    (1 )             (507 )                             (508 )
Stock-based compensation
                                    278                               278  
Income tax benefits from vesting of restricted stock
                                    255                               255  
                                                                         
Balance at March 25, 2012
  $ -     $ 33     $ 66     $ 434     $ 254,815     $ (52,598 )   $ 2,372     $ 1,164     $ 206,286  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
5


JOURNAL COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Statement of Equity
For the First Quarter Ended March 27, 2011
(in thousands, except per share amounts)

                                                             
                             
Additional
   
Accumulated
Other
     
Retained
         
Treasury
       
   
Preferred
   
Common Stock
   
Paid-in-
   
Comprehensive
   
Earnings
   
Noncontrolling
   
Stock,
       
   
Stock
   
Class C
   
Class B
   
Class A
   
Capital
   
Loss
    (Deficit)    
Interest
   
at cost
   
Total
 
                                                             
Balance at December 26, 2010
  $ -     $ 33     $ 165     $ 432     $ 260,376     $ (32,295 )   $ 87,767     $ 1,164     $ (108,715 )   $ 208,927  
                                                                                 
Net earnings
                                                    3,375                       3,375  
Comprehensive income
                                            197                               197  
Class C dividends declared ($0.142 per share)
                                                    (464 )                     (464 )
Issuance of shares:
                                                                               
Conversion of class B to class A
                    (11 )     11                                               -  
Stock grants
                    3               17                                       20  
Employee stock purchase plan
                                    181                                       181  
Shares withheld from employees for tax withholding
                    (1 )             (505 )                                     (506 )
Stock-based compensation
                                    261               1                       262  
Income tax benefits from vesting of restricted stock
                                    368                                       368  
                                                                                 
Balance at March 27, 2011
  $ -     $ 33     $ 156     $ 443     $ 260,698     $ (32,098 )   $ 90,679     $ 1,164     $ (108,715 )   $ 212,360  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
6


JOURNAL COMMUNICATIONS, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

   
First Quarter Ended
 
   
March 25, 2012
   
March 27, 2011
 
             
Cash flow from operating activities:
           
Net earnings
  $ 2,919     $ 3,375  
Less earnings from discontinued operations
    --       341  
Earnings from continuing operations
    2,919       3,034  
Adjustments for non-cash items:
               
Depreciation
    5,340       5,352  
Amortization
    381       392  
Provision for doubtful accounts
    22       260  
Deferred income taxes
    2,027       1,964  
Non-cash stock-based compensation
    296       281  
Net (gain) loss from disposal of assets
    20       (50 )
Net changes in operating assets and liabilities, excluding effect of sales and acquisitions:
               
Receivables
    7,984       8,036  
Inventories
    (1,318 )     (55 )
Accounts payable
    (342 )     (959 )
Other assets and liabilities
    (8,991 )     (14,797 )
Net Cash Provided By Operating Activities
    8,338       3,458  
                 
Cash flow from investing activities:
               
Capital expenditures for property and equipment
    (2,847 )     (2,656 )
Proceeds from sales of assets
    27       64  
Proceeds from sale of business
    484       16  
Net Cash Used For Investing Activities
    (2,336 )     (2,576 )
                 
Cash flow from financing activities:
               
Proceeds from long-term notes payable to banks
    27,320       34,730  
Payments on long-term notes payable to banks
    (30,900 )     (36,725 )
Principal payments under capital lease obligations
    (88 )     (86 )
Proceeds from issuance of common stock, net
    134       163  
Income tax benefits from vesting of restricted stock
    289       430  
Redemption of common stock
    (2,932 )     --  
Net Cash Used For Financing Activties
    (6,177 )     (1,488 )
                 
Cash flow from discontinued operations:
               
Net operating activities
    --       (223 )
Net investing activities
    --       822  
Net Cash Provided by Discontinued Operations
    --       599  
                 
Net Decrease In Cash And Cash Equivalents
    (175 )     (7 )
                 
Cash and cash equivalents:
               
Beginning of year
    2,418       2,056  
At March 25, 2012 and March 27, 2011
  $ 2,243     $ 2,049  

See accompanying notes to unaudited condensed consolidated financial statements.

 
7


JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

1
BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by Journal Communications, Inc. and its wholly owned subsidiaries and a variable interest entity (VIE) for which we are the primary beneficiary in accordance with U.S. generally accepted accounting principles and pursuant to the rules and regulations of the Securities and Exchange Commission and reflect normal and recurring adjustments, which we believe to be necessary for a fair presentation.  As permitted by these regulations, these statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for annual financial statements.  However, we believe that the disclosures are adequate to make the information presented not misleading.  The gain on the sale of NorthStar Print Group Inc.’s (NorthStar) real estate holdings in the first quarter of 2011 has been reflected as discontinued operations in our condensed consolidated statements of operations.  The balance sheet at December 25, 2011 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.  The operating results for the first quarter ended March 25, 2012 are not necessarily indicative of the operating results that may be expected for the fiscal year ending December 30, 2012.  You should read these unaudited condensed consolidated financial statements in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 25, 2011.

2
ACCOUNTING PERIODS

We report on a 52-53 week fiscal year ending on the last Sunday of December in each year.  In addition, we have four quarterly reporting periods, each consisting of 13 weeks and ending on a Sunday, provided that once every six years, the fourth quarterly reporting period will be 14 weeks.  The fourth quarterly reporting period in our 2012 fiscal year will consist of 14 weeks.
 
 
3
NEW ACCOUNTING STANDARDS

In September 2011, the Financial Accounting Standards Board (FASB) issued amended guidance for goodwill impairment.  The guidance simplifies how entities test goodwill for impairment.  The new guidance allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.  Under these amendments, an entity will be required to perform the two-step impairment test only if it concludes that the fair value of a reporting unit is more likely than not, less than its carrying value.  This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted.  We adopted this guidance in the first quarter of 2012.  There has been no impact on our consolidated financial statements.

In June 2011, the FASB issued amended guidance for comprehensive income.  The guidance requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The new guidance eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity.  Subsequently, in December 2011, the FASB issued its final standard to defer the new requirement to present components of reclassifications of other comprehensive income on the face of the income statement.  The other requirements contained in the new standard on comprehensive income must still be adopted.  This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted.  We adopted this guidance in the first quarter of 2012 and opted to present the total of comprehensive income in two separate but consecutive statements.

In May 2011, the FASB issued amended guidance for fair value measurement and disclosure requirements between U.S. generally accepted accounting principles and International Financial Reporting Standards (IFRS).  The new guidance includes amendments to clarify the definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. generally accepted accounting principles and IFRS.  The guidance also changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements.  This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  We adopted this guidance in the first quarter of 2012.  There has been no impact on our consolidated financial statements.

 
8


JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

4
EARNINGS PER SHARE

Basic

We apply the two-class method for calculating and presenting our basic earnings per share.  As noted in the FASB’s guidance for earnings per share, the two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared (or accumulated) and participation rights in undistributed earnings.  Under that method:

 
(a)
Income (loss) from continuing operations (“net earnings (loss)”) is reduced by the amount of dividends declared in the current period for each class of stock and by the contractual amount of dividends that must be paid or accrued during the current period.

 
(b)
The remaining earnings, which may include earnings from discontinued operations (“undistributed earnings”), are allocated to each class of common stock to the extent that each class of stock may share in earnings if all of the earnings for the period were distributed.

 
(c)
The remaining losses (“undistributed losses”) are allocated to the class A and B common stock.  Undistributed losses are not allocated to the class C common stock and non-vested restricted stock because the class C common stock and the non-vested restricted stock are not contractually obligated to share in the losses.  Losses from discontinued operations are allocated to class A and B shares and may be allocated to class C shares and non-vested restricted stock if there is undistributed earnings after deducting earnings distributed to class C shares from income from continuing operations.

 
(d)
The total earnings (loss) allocated to each class of common stock are then divided by the number of weighted average shares outstanding of the class of common stock to which the earnings (loss) are allocated to determine the earnings (loss) per share for that class of common stock.

 
(e)
Basic earnings (loss) per share data are presented for class A and B common stock in the aggregate and for class C common stock.  The basic earnings (loss) per share for class A and B common stock are the same; hence, these classes are reported together.

 
9


JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

4
EARNINGS PER SHARE continued

In applying the two-class method, we have determined that undistributed earnings should be allocated equally on a per share basis among each class of common stock due to the lack of any contractual participation rights of any class to those undistributed earnings.  Undistributed losses are allocated to only the class A and B common stock for the reason stated above.

The following table sets forth the computation of basic earnings per share under the two-class method:

   
First Quarter Ended
 
   
March 25, 2012
   
March 27, 2011
 
             
Numerator for basic earnings from continuing operations for each class of common stock and non-vested restricted stock:
           
Earnings from continuing operations
  $ 2,919     $ 3,034  
Less dividends declared or accrued:
               
Class A and B
    --       --  
Class C
    464       464  
Non-vested restricted stock
    --       --  
Total undistributed earnings from continuing operations
  $ 2,455     $ 2,570  
                 
Class A and B undistributed earnings from continuing operations
  $ 2,283     $ 2,383  
Class C undistributed earnings from continuing operations
    148       152  
Non-vested restricted stock undistributed earnings from continuing operations
    24       35  
Total undistributed earnings from continuing operations
  $ 2,455     $ 2,570  
                 
Numerator for basic earnings from continuing operations per class A and B common stock:
               
Dividends on class A and B
  $ --     $ --  
Class A and B undistributed earnings
    2,283       2,383  
Numerator for basic earnings from continuing operations per class A and B common stock
  $ 2,283     $ 2,383  
                 
Numerator for basic earnings from continuing operations per class C common stock:
               
Dividends accrued on class C
  $ 464     $ 464  
Class C undistributed earnings
    148       152  
Numerator for basic earnings from continuing operations per class C common stock
  $ 612     $ 616  
                 
Denominator for basic earnings from continuing operations for each class of common stock:
               
Weighted average shares outstanding - Class A and B
    50,382       51,126  
Weighted average shares outstanding - Class C
    3,264       3,264  
                 
Basic earnings per share from continuing operations
               
Class A and B
  $ 0.05     $ 0.05  
Class C
  $ 0.19     $ 0.19  

 
10


JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

4
EARNINGS PER SHARE continued

   
First Quarter Ended
 
   
March 25, 2012
   
March 27, 2011
 
             
Numerator for basic earnings from discontinued operations for each class of common stock and non-vested restricted stock:
           
Total undistributed earnings from discontinued operations
  $ --     $ 341  
                 
Undistributed earnings from discontinued operations:
               
Class A and B
  $ --     $ 316  
Class C
    --       20  
Non-vested restricted stock
    --       5  
Total undistributed earnings from discontinued operations
  $ --     $ 341  
                 
Denominator for basic earnings from discontinued operations for each class of common stock:
               
Weighted average shares outstanding - Class A and B
    50,382       51,126  
Weighted average shares outstanding - Class C
    3,264       3,264  
                 
Basic earnings per share from discontinued operations
               
Class A and B
  $ --     $ --  
Class C
  $ --     $ --  
                 
Numerator for basic net earnings for each class of common stock:
               
Net earnings
  $ 2,919     $ 3,375  
Less dividends declared or accrued:
               
Class A and B
    --       --  
Class C
    464       464  
Non-vested restricted stock
    --       --  
Total undistributed net earnings
  $ 2,455     $ 2,911  
                 
Undistributed net earnings:
               
Class A and B
  $ 2,283     $ 2,699  
Class C
    148       172  
Non-vested restricted stock
    24       40  
Total undistributed net earnings
  $ 2,455     $ 2,911  
                 
Numerator for basic net earnings per class A and B common stock:
               
Dividends declared on class A and B
  $ --     $ --  
Class A and B undistributed net earnings
    2,283       2,699  
Numerator for basic net earnings per class A and B common stock
  $ 2,283     $ 2,699  
                 
Numerator for basic net earnings per class C common stock:
               
Dividends accrued on class C
  $ 464     $ 464  
Class C undistributed net earnings
    148       172  
Numerator for basic net earnings per class C common stock
  $ 612     $ 636  
                 
Denominator for basic net earnings for each class of common stock:
               
Weighted average shares outstanding - Class A and B
    50,382       51,126  
Weighted average shares outstanding - Class C
    3,264       3,264  
                 
Basic net earnings per share:
               
Class A and B
  $ 0.05     $ 0.09  
Class C
  $ 0.19     $ 0.19  

 
11


JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

4
EARNINGS PER SHARE continued

Diluted

Diluted earnings per share is computed based upon the assumption that common shares are issued upon exercise of our stock appreciation rights when the exercise price is less than the average market price of our common shares and common shares will be outstanding upon expiration of the vesting periods for our non-vested restricted stock and performance-based restricted stock units.  For the first quarters of 2012 and 2011, 95 and 220 non-vested restricted class B common shares and performance-based restricted stock units, respectively, are not deemed to be outstanding upon expiration of the vesting periods because they are anti-dilutive.  The class C shares are not converted into class A and B shares because they are anti-dilutive for all periods presented, and therefore are not included in the diluted weighted average shares outstanding.

The following table sets forth the computation of diluted net earnings per share for class A and B common stock:

   
First Quarter Ended
 
   
March 25, 2012
   
March 27, 2011
 
Numerator for diluted net earnings per share:
           
Dividends on class A and B common stock
  $ --     $ --  
Total undistributed earnings from continuing operations
    2,283       2,383  
Total undistributed earnings from discontinued operations
    --       316  
Net earnings
  $ 2,283     $ 2,699  
                 
Denominator for diluted net earnings per share:
               
Weighted average shares outstanding - class A and B
    50,382       51,126  
                 
Diluted earnings per share:
               
Continuing operations
  $ 0.05     $ 0.05  
Discontinued operations
    --       --  
Net earnings
  $ 0.05     $ 0.05  

Diluted earnings per share for the class C common stock is the same as basic earnings per share for class C common stock because there are no class C common stock equivalents.

Each of the 3,264,000 class C shares outstanding is convertible at any time at the option of the holder into either (i) 1.363970 class A shares (or a total of 4,451,998 class A shares) or (ii) 0.248243 class A shares (or a total of 810,265 class A shares) and 1.115727 class B shares (or a total of 3,641,733 class B shares).

5
VARIABLE INTEREST ENTITY

We have an affiliation agreement with ACE TV, Inc. for the rights under a local marketing agreement for WACY-TV in Appleton, Wisconsin and to acquire certain assets of ACE TV, Inc. including the broadcast license of WACY-TV for a purchase price of $2,038, pending FCC rule changes and approval.  Under the affiliation agreement, ACE TV, Inc. provides the programming for WACY-TV and we sell advertising time, provide all other television operating activities and own the non-broadcast license assets used by WACY-TV.  Based on our power to direct certain activities and our right to ultimately acquire the broadcast license, we have determined that ACE TV, Inc. is a VIE and that we are the primary beneficiary of the variable interests of WACY-TV.  As a result, we have consolidated the net assets of ACE TV, Inc., aggregating $1,164 which consists primarily of a broadcast license and investments.  The investments of ACE TV, Inc. can be used only to settle obligations of ACE TV, Inc.  Creditors of ACE TV, Inc. have no recourse to our general credit.  We have not provided financial or other support that we are not contractually required to provide.

6
INVENTORIES

Inventories are stated at the lower of cost (first in, first out method) or market.  Inventories as of March 25, 2012 and December 25, 2011 consist of the following:

   
March 25, 2012
   
December 25, 2011
 
             
Paper and supplies
  $ 3,124     $ 1,778  
Work in process
    21       33  
Less obsolescence reserve
    (61 )     (45 )
Inventories, net
  $ 3,084     $ 1,766  

 
12


JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

7
RECEIVABLES

Our non-interest bearing accounts receivable arise primarily from the sale of advertising, commercial printing, commercial distribution and the retransmission of our television programs by Multiple Video Programming Distributors (MVPDs).  We record accounts receivable at original invoice amounts.  The accounts receivable balance is reduced by an estimated allowance for doubtful accounts.  We evaluate the collectability of our accounts receivable based on a combination of factors.  We specifically review historical write-off activity by market, large customer concentrations, customer creditworthiness and changes in our customer payment patterns and terms when evaluating the adequacy of the allowance for doubtful accounts.  In circumstances where we are aware of a specific customer’s inability to meet its financial obligations, we record a specific reserve to reduce the amounts recorded to what we believe will be collected.  For all other customers, we recognize allowances for bad debts based on historical experience of bad debts as a percent of accounts receivable for each business unit.  We write off uncollectible accounts against the allowance for doubtful accounts after collection efforts have been exhausted.  The allowance for doubtful accounts at March 25, 2012 and December 25, 2011 was $1,737 and $1,870, respectively.

We received a $450 secured note resulting from the sale of two radio stations in Boise, Idaho in September 2009.  Interest-only payments are due monthly and the principal balance of the note is due on September 25, 2014.  Principal payments totaling $50 were received in 2011 and 2010.  The note receivable balance at March 25, 2012 and December 25, 2011 was $400.  This note receivable is reported in other assets in the consolidated balance sheets.  Management monitors the level of payment activity and, to date, all monthly interest-only payments have been received on time and in full.  We believe that we will collect the amount owed to us.

In consideration for the sale of the Clearwater, Florida-based operations of PrimeNet in February 2010, we received a $700 promissory note repayable over four years and a $147 working capital note repayable over three years.  At the time of the sale, we recorded receivables of $587 and $129, respectively, representing the fair value of the notes discounted at 6.785% and 9.08%, respectively.  At December 25, 2011, the notes receivables balances were $433 and $51, respectively, and reported in receivables, net in the consolidated balance sheets.  In January 2012, both notes were paid in full.

Interest income and the unamortized discount on our notes receivable are recorded using the effective interest method.

8
GOODWILL AND OTHER INTANGIBLE ASSETS

Definite-lived Intangibles
Our definite-lived intangible assets consist primarily of network affiliation agreements, customer lists, non-compete agreements and trade names.  We amortize the network affiliation agreements over a period of 25 years based on our good relationships with the networks, our long history of renewing these agreements and because 25 years is deemed to be the length of time before a material modification of the underlying contract would occur.  We amortize the customer lists over a period of five to 15 years, the non-compete agreements and franchise agreement fees over the terms of the contracts and the tradenames over a period of 25 years.  Management determined there were no significant adverse changes in the value of these assets as of March 25, 2012.

Amortization expense was $381 for the first quarter ended March 25, 2012, and $392 for the first quarter ended March 27, 2011.  Estimated amortization expense for our next five fiscal years is $1,485 for 2012, $1,367 for 2013, $1,273 for 2014, $1,263 for 2015 and $1,263 for 2016.

 
13


JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

8
GOODWILL AND OTHER INTANGIBLE ASSETS continued

The gross carrying amount, accumulated amortization and net carrying amount of the major classes of definite-lived intangible assets as of March 25, 2012 and December 25, 2011 are as follows:

   
Gross
           Net  
   
Carrying
   
Accumulated
   
Carrying
 
   
Amount
   
Amortization
   
Amount
 
March 25, 2012
                 
Network affiliation agreements
  $ 26,930     $ (8,396 )   $ 18,534  
Customer lists
    5,952       (4,936 )     1,016  
Non-compete agreements
    10,120       (10,099 )     21  
Other
    3,824       (2,376 )     1,448  
Total
  $ 46,826     $ (25,807 )   $ 21,019  
                         
December 25, 2011
                       
Network affiliation agreements
  $ 26,930     $ (8,129 )   $ 18,801  
Customer lists
    5,952       (4,862 )     1,090  
Non-compete agreements
    10,120       (10,095 )     25  
Other
    3,824       (2,340 )     1,484  
Total
  $ 46,826     $ (25,426 )   $ 21,400  

Indefinite-lived Intangibles
Broadcast licenses are deemed to have indefinite useful lives because we have renewed these agreements without issue in the past and we intend to renew them indefinitely in the future.  Accordingly, we expect the cash flows from our broadcast licenses to continue indefinitely.  The net carrying amount of our broadcast licenses was $81,547 as of March 25, 2012 and December 25, 2011.

The costs incurred to renew or extend the term of our broadcast licenses and certain customer relationships are expensed as incurred.

Goodwill
There were no changes in the carrying amount of goodwill for the quarter ended March 25, 2012.  As of March 25, 2012, we have $3,857 of goodwill recorded at our community newspapers and shoppers reporting unit and $4,813 of goodwill recorded at our broadcasting reporting unit.  We do not believe either of these reporting units is at risk for failing the step one impairment test in accordance with the FASB’s guidance for accounting for goodwill and intangible assets.

9
WORKFORCE REDUCTIONS AND BUSINESS IMPROVEMENTS

During the first quarter of 2012, we recorded a pre-tax charge of $38 for workforce separation benefits across our publishing businesses.  These charges are recorded in operating costs and expenses and selling and administrative expenses in the consolidated statement of operations.  The ongoing activity of our liability for separation benefits during the first quarter of 2012 was as follows:

   
Balance as of
December 25, 2011
   
Charge for
Separation
Benefits
   
Payments for
Separation
Benefits
   
Balance as of
March 25, 2012
 
                         
Daily newspaper
  $ 1,733     $ 38     $ (659 )   $ 1,112  
Community newspapers and shoppers
    47       --       (40 )     7  
Total
  $ 1,780     $ 38     $ (699 )   $ 1,119  

 
14


JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

10
INCOME TAXES

We file tax returns in the United States federal jurisdiction, as well as approximately 15 state and local jurisdictions.  The statute of limitations for assessing additional taxes is three years for federal purposes and typically between three and four years for state and local purposes.  Accordingly, our 2008 through 2010 tax returns are open for federal purposes, and our 2007 through 2010 tax returns remain open for state tax purposes, unless the statute of limitations has been previously extended.  Currently, we are under audit in Wisconsin for our 2004 through 2007 tax returns and Illinois for our 2006 and 2007 tax returns.

As of March 25, 2012, our liability for unrecognized tax benefits was $885, which, if recognized, would have an impact on our effective tax rate.  We recognize interest income/expense and penalties related to unrecognized tax benefits in our provision for income taxes.  As of March 25, 2012, we had $292 accrued for interest expense and penalties.  During the first quarter of 2012, we recognized $10 in interest expense.

As of March 25, 2012, it is possible for $284 of unrecognized tax benefits and related interest to be recognized within the next 12 months due to settlements with taxing authorities.

11
GUARANTEES
 
We provided a guarantee to the landlord of our former New England community newspapers and shopper business, which was sold in 2007, with respect to tenant liabilities and obligations associated with a lease which expires in December 2016.  As of March 25, 2012, our potential obligation pursuant to the guarantee was $857, plus costs of collection, attorney fees and other charges incurred if the tenant defaults.  As part of the sales transaction, we received a guarantee from the parent entity of the buyer of our New England business that the buyer will satisfy all the liabilities and obligations of the assigned lease.  In the event that the buyer fails to satisfy its liabilities and obligations and the landlord invokes our guarantee, we have a right to indemnification from the buyer’s parent entity.

12
EMPLOYEE BENEFIT PLANS

The components of our net periodic benefit (income) costs for our defined benefit and non-qualified pension plans and our postretirement health benefit plan are as follows:

   
Pension Benefits
 
   
First Quarter Ended
 
   
March 25, 2012
   
March 27, 2011
 
             
Service cost
  $ --     $ --  
Interest cost
    1,894       1,963  
Expected return on plan assets
    (2,114 )     (2,399 )
Amortization of:
               
Unrecognized prior service cost
    (3 )     (3 )
Unrecognized net loss
    510       245  
Net periodic benefit (income) cost included in total operating costs and expenses and selling and administrative expenses
  $ 287     $ (194 )

We fund our defined benefit pension plan at the minimum amount required by the Pension Protection Act of 2006.   Based on current projections, we expect to contribute $4,200 to our qualified defined benefit pension plan in 2012.  We expect to contribute $489 to our unfunded non-qualified pension plan in 2012.

   
Other Postretirement Benefits
 
   
First Quarter Ended
 
   
March 25, 2012
   
March 27, 2011
 
             
Service cost
  $ 3     $ 13  
Interest cost
    158       207  
Amortization of:
               
Unrecognized prior service cost
    (55 )     (55 )
Unrecognized net loss
    47       --  
Unrecognized net transition obligation
    136       137  
Net periodic benefit cost included in total operating costs and expenses and selling and administrative expenses
  $ 289     $ 302  

 
15

 
JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

13
NOTES PAYABLE TO BANKS

We have a secured credit facility of $225,000 that expires on December 2, 2013.  The secured credit facility is secured by liens on certain of our assets and the assets of our subsidiaries and contains affirmative, negative and financial covenants which are customary for financings of this type, including, among other things, limits on the creation of liens, limits on the incurrence of indebtedness, restrictions on dispositions and restrictions on dividends.  At our option, the commitments under the secured credit facility may be increased from time to time to an aggregate amount of incremental commitments not to exceed $100,000.  The increase option is subject to the satisfaction of certain conditions, including the identification of lenders (which may include existing lenders or new lenders) willing to provide the additional commitments.

Our borrowings under the secured credit facility incur interest at either LIBOR plus a margin that ranges from 225.0 basis points to 350.0 basis points, depending on our leverage, or (i) the base rate, which equals the highest of the prime rate set by U.S. Bank National Association, the Federal Funds Rate plus 100.0 basis points or one-month LIBOR plus 150.0 basis points, plus (ii) a margin that ranges from 125.0 basis points to 250.0 basis points, depending on our leverage.  As of March 25, 2012 and December 25, 2011, we had borrowings of $37,725 and $41,305, respectively, under our credit facility at a weighted average interest rate of 2.64% and 2.65%, respectively.

Fees in connection with the credit facility of $3,551 are being amortized over the term of the secured credit facility using the effective interest method.

We estimate the fair value of our secured credit facility at March 25, 2012 to be $37,570, based on discounted cash flows using an interest rate of 2.90%.  We estimated the fair value of our secured credit facility at December 25, 2011 to be $40,988, based on discounted cash flows using an interest rate of 3.05%.  These fair value measurements fall within Level 2 of the fair value hierarchy.

The secured credit facility contains the following financial covenants, which remain constant over the term of the agreement:

 
·
A consolidated funded debt ratio of not greater than 3.50-to-1, as determined for the four fiscal quarter period preceding the date of determination.  This ratio compares, for any period, our funded debt to our consolidated EBITDA, defined in the secured credit agreement as earnings before interest, taxes, depreciation, amortization, restructuring charges, gains/losses on asset disposals and non-cash charges.

 
·
A minimum interest coverage ratio of not less than 3-to-1, as determined for the four fiscal quarter period preceding the date of determination.  This ratio compares, for any period, our consolidated EBITDA, defined in the secured credit agreement as earnings before interest, taxes, depreciation, amortization, restructuring charges, gains/losses on asset disposals and non-cash charges, to our interest expense.

One or more of the lenders in our secured credit facility syndicate could be unable to fund future draws thereunder or take other positions adverse to us.  In such an event, our liquidity could be constrained with an adverse impact on our ability to operate our businesses.

 
16


JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

14
STOCK-BASED COMPENSATION

2007 Journal Communications, Inc. Omnibus Incentive Plan
The purpose of the 2007 Journal Communications, Inc. Omnibus Incentive Plan (2007 Plan) is to promote our success by linking personal interests of our employees, officers and non-employee directors to those of our shareholders, and by providing participants with an incentive for outstanding performance.  The 2007 Plan is also intended to enhance our ability to attract, motivate and retain the services of employees, officers and directors upon whose judgment, interest and special effort the successful conduct of our operation is largely dependent.

Subject to adjustment as provided in the 2007 Plan, the aggregate number of shares of class A common stock or class B common stock reserved and available for issuance pursuant to awards granted under the 2007 Plan is 4,800,000 shares which may be awarded in the form of nonstatutory or incentive stock options, stock appreciation rights, restricted stock, restricted or deferred stock units, performance awards, dividend equivalents or other stock-based awards.  The 2007 Plan also provides for the issuance of cash-based awards.  The 2007 Plan replaced the 2003 Equity Incentive Plan (2003 Plan) and, as of May 3, 2007, all equity grants are made from the 2007 Plan.  We will not grant any additional awards under the 2003 Plan.  As of March 25, 2012 there are 2,546,840 shares available for issuance under the 2007 Plan.

During the first quarter ended March 25, 2012 we recognized $304 in stock-based compensation expense.  Total income tax benefit recognized related to stock-based compensation for the first quarter ended March 25, 2012 was $127.  During the first quarter ended March 27, 2011, we recognized $292 in stock-based compensation expense.  Total income tax benefit recognized related to stock-based compensation for the first quarter ended March 27, 2011 was $113.  We recognize stock-based compensation expense on a straight-line basis over the service period based upon the fair value of the award on the grant date.  As of March 25, 2012, total unrecognized compensation cost related to stock-based compensation awards was $2,544 net of estimated forfeitures, which we expect to recognize over a weighted average period of 1.5 years.  Stock-based compensation expense is reported in selling and administrative expenses in our condensed consolidated statements of operations.

Stock grants
The compensation committee of our board of directors has granted class B common stock to employees and non-employee directors under our 2003 Plan and our 2007 Plan.  Each stock grant may have been accompanied by restrictions, or may have been made without any restrictions, as the compensation committee of our board of directors determined.  Such restrictions could have included requirements that the participant remain in our continuous employment for a specified period of time, or that we or the participant meet designated performance goals.  We value non-vested restricted stock grants at the closing market prices of our class A common stock on the grant date.

A summary of stock grant activity during the first quarter of 2012 is:

           Weighted
Average
 
   
Shares
   
Fair Value
 
             
Non-vested at December 25, 2011
    657,275     $ 3.89  
Granted
    160,452       5.33  
Vested
    (317,190 )     2.72  
Forfeited
    (1,500 )     4.91  
Non-vested at March 25, 2012
    499,037       5.09  

Our non-vested restricted stock grants vest from one to three years from the grant date.  The total fair value of shares vesting during the first quarter of 2012 was $490.  There was an aggregate of 246,980 unrestricted and non-vested restricted stock grants issued to our non-employee directors (3,980 shares) and employees (243,000 shares) in the first quarter of 2011 at a weighted average fair value of $5.94 per share, of which 82,901 of the non-vested restricted shares have since vested.

Performance units
In the first quarter of 2012, the compensation committee of our board of directors approved performance-based restricted stock units (performance units), which represent the right to earn shares of class B common stock based on continued employment and the achievement of specified targets for adjusted cumulative EBITDA over the 2012 to 2014 fiscal year performance period under our 2007 Plan.  We value performance unit awards at the closing market price of our class A common stock on the grant date.  In the first quarter of 2012, we granted 76,700 performance units at a weighted average fair value of $5.59. The actual number of performance units that vest will be determined at the end of the three year performance period. As of March 25, 2012, 76,700 performance units remain unvested.

 
17



JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

14
STOCK-BASED COMPENSATION continued

Employee stock purchase plan
The 2003 Employee Stock Purchase Plan permits eligible employees to purchase our class B common stock at 90% of the fair market value measured as of the closing market price of our class A common stock on the day of purchase.  We recognize compensation expense equal to the 10% discount of the fair market value.  Subject to certain adjustments, 3,000,000 shares of our class B common stock are authorized for sale under this plan.  There were 32,626 class B common shares sold to employees under this plan in the first quarter of 2012 at a weighted average fair value of $3.96.  As of March 25, 2012, there are 2,230,997 shares available for sale under the plan.

Stock appreciation rights
A stock appreciation right, or SAR, represents the right to receive an amount equal to the excess of the fair value of a share of our class B common stock on the exercise date over the base value of the SAR, which shall not be less than the fair value of a share of our class B common stock on the grant date.  Each SAR is settled only in shares of our class B common stock.  The term during which any SAR may be exercised is 10 years from the grant date, or such shorter period as determined by the compensation committee of our board of directors.

Our SARs vest over a three year graded vesting schedule and it is our policy to recognize compensation cost for awards with graded vesting on a straight-line basis over the vesting period for the entire award.  We ensure the compensation cost recognized at any date is at least equal to the portion of the grant-date value of the award that is vested at that date.  The fixed price SARs have a fixed base value equal to the closing price of our class A common stock on the date of grant.  The escalating price SARs have an escalating base value that starts with the closing price of our class A common stock on the date of grant and increases by six percent per year for each year that the SARs remain outstanding, starting on the first anniversary of the grant date.

A summary of SAR activity during the first quarter of 2012 is:

   
SARs
   
Weighted
Average
Exercise Price
   
Weighted
Average
Contractual Term
Remaining
(years)
 
                   
December 25, 2011
                 
Outstanding and exercisable
    1,083,207     $ 10.71       5.6  
                         
March 25, 2012
                       
Outstanding and exercisable
    1,083,207     $ 10.71       5.4  

All SARs issued have vested.  The aggregate intrinsic value of the SARs outstanding and exercisable at the end of the first quarter of 2012 is zero because the fair market value of our class B common stock on March 25, 2012 was lower than the weighted average exercise price of the SARs.

 
18


JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

15
DISCONTINUED OPERATIONS

NorthStar Print Group, Inc.
During 2005, Multi-Color Corporation (Multi-Color) acquired substantially all of the assets and certain liabilities of NorthStar Print Group, Inc. (NorthStar), our former label printing business.  Certain liabilities were excluded from the sale of NorthStar and primarily consisted of environmental site closure costs for both the Green Bay, Wisconsin real estate and real estate located in Norway, Michigan.  In January 2011, upon environmental site closure in Green Bay, Wisconsin, we sold the real estate holdings to Multi-Color according to the 2005 sale agreement.  The net proceeds were $822 and we recorded a pre-tax gain of $610.  We continue to have environmental site closure obligations with respect to the Norway, Michigan real estate, which was sold to Multi-Color in 2005.

The following table summarizes NorthStar’s revenue and earnings before income taxes as reported in earnings from discontinued operations, net of applicable income taxes in the condensed consolidated statement of operations for the first quarter ended March 25, 2012 and March 27, 2011:

   
First Quarter Ended
 
   
March 25, 2012
   
March 27, 2011
 
             
Revenue
  $ --     $ --  
Earnings before income taxes
    --       562  

 
19


JOURNAL COMMUNICATIONS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share amounts)

16
SEGMENT REPORTING

Our business segments are based on the organizational structure used by management for making operating and investment decisions and for assessing performance.  Our reportable business segments are: (i) broadcasting; (ii) publishing; and (iii) corporate.  Our broadcasting segment consists of 33 radio stations and 13 television stations in 12 states and the operation of a television station under a local marketing agreement.  Our publishing segment consists of the Milwaukee Journal Sentinel, which serves as the only major daily newspaper for the Milwaukee metropolitan area, and several community newspapers and shoppers in Wisconsin.  Our corporate segment consists of unallocated corporate expenses and revenue eliminations.

The following tables summarize revenue, operating earnings (loss), depreciation and amortization and capital expenditures for the first quarter ended March 25, 2012 and March 27, 2011 and identifiable total assets as of March 25, 2012 and December 25, 2011:
 
   
First Quarter Ended
 
   
March 25, 2012
   
March 27, 2011
 
Revenue
           
Broadcasting
  $ 44,374     $ 42,109  
Publishing
    38,021       41,800  
Corporate eliminations
    (129 )     (48 )
    $ 82,266     $ 83,861  
                 
Operating earnings (loss)
               
Broadcasting
  $ 6,709     $ 5,975  
Publishing
    744       1,825  
Corporate
    (1,713 )     (1,792 )
    $ 5,740     $ 6,008  
                 
Depreciation and amortization
               
Broadcasting
  $ 3,084     $ 2,966  
Publishing
    2,472       2,632  
Corporate
    165       146  
    $ 5,721     $ 5,744  
                 
Capital expenditures
               
Broadcasting
  $ 2,518     $ 2,140  
Publishing
    92       366  
Corporate
    237       150  
    $ 2,847     $ 2,656  
                 
   
March 25, 2012
   
December 25, 2011
 
                 
Identifiable total assets
               
Broadcasting
  $ 255,055     $ 262,216  
Publishing
    108,505       113,236  
Corporate & discontinued operations
    42,826       42,273  
    $ 406,386     $ 417,725  

17
SUBSEQUENT EVENTS

On March 7, 2012, Journal Broadcast Group announced that it reached an agreement to purchase KHTT-FM and KBEZ-FM in Tulsa, Oklahoma from Renda Broadcasting Corporation.  Journal Broadcast Group also entered into a local marketing agreement with Renda Broadcasting Corporation on March 7, 2012, which was effective on March 26, 2012.  The estimated cash purchase price for KHTT-FM and KBEZ-FM is $11,800.  The transaction is subject to FCC approval.

 
20


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements for the first quarter ended March 25, 2012, including the notes thereto.

More information regarding us is available at our website at www.journalcommunications.com.  We are not including the information contained in our website as a part of, or incorporating it by reference into, this Quarterly Report on Form 10-Q.  Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports are made available to the public at no charge, other than a reader’s own internet access charges, through a link appearing on our website.  We provide access to such material through our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).

Forward-Looking Statements

We make certain statements in this Quarterly Report on Form 10-Q (including the information that we incorporate by reference herein) that are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.  We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in that Act, and we are including this statement for purposes of those safe harbor provisions.  These forward-looking statements generally include all statements other than statements of historical fact, including statements regarding our future financial position, business strategy, budgets, projected revenues and expenses, expected regulatory actions and plans and objectives of management for future operations.  We often use words such as "may," "will," "intend," "anticipate," "believe," or "should" and similar expressions in this Quarterly Report on Form 10-Q to identify forward-looking statements.  These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control.  These risks, uncertainties and other factors could cause actual results to differ materially from those expressed or implied by those forward-looking statements.  Among such risks, uncertainties and other factors that may impact us are the following as well as those contained in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 25, 2011:
 
 
·
changes in advertising demand or the buying strategies of advertisers or the migration of advertising to the internet;
 
·
changes in newsprint prices and other costs of materials;
 
·
changes in federal or state laws and regulations or their interpretations (including changes in regulations governing the number and types of broadcast and cable system properties, newspapers and licenses that a person may control in a given market or in total or changes in spectrum allocation policies);
 
·
changes in legislation or customs relating to the collection, management and aggregation and use of consumer information through telemarketing and electronic communication efforts;
 
·
the availability of quality broadcast programming at competitive prices;
 
·
changes in network affiliation agreements, including increased costs;
 
·
quality and rating of network over-the-air broadcast programs, including programs changing networks and changing competitive dynamics regarding how and when programs are made available to our viewers;
 
·
effects of the loss of commercial inventory resulting from uninterrupted television news coverage and potential advertising cancellations due to war or terrorist acts;
 
·
effects of the rapidly changing nature of the publishing, broadcasting and printing industries, including general business issues, competitive issues and the introduction of new technologies;
 
·
an other than temporary decline in operating results and enterprise value that could lead to further non-cash impairment charges due to the impairment of goodwill, broadcast licenses, other intangible assets and property, plant and equipment;
 
·
the impact of changing economic and financial market conditions and interest rates on our liquidity, on the value of our pension plan assets and on the availability of capital;
 
·
our ability to remain in compliance with the terms of our credit agreement;
 
·
changes in interest rates or statutory tax rates;
 
·
the outcome of pending or future litigation;
 
·
energy costs;
 
·
the availability and effect of acquisitions, investments, dispositions and other capital expenditures including share repurchases on our results of operations, financial condition or stock price; and
 
·
changes in general economic conditions.
 
We caution you not to place undue reliance on these forward-looking statements, which we have made as of the date of this Quarterly Report on Form 10-Q.

 
21


Overview

Our business segments are based on the organizational structure used by management for making operating and investment decisions and for assessing performance.  Our reportable business segments are: (i) broadcasting; (ii) publishing; and (iii) corporate.  Our broadcasting segment consists of 33 radio stations and 13 television stations in 12 states and the operation of a television station under a local marketing agreement.  In addition, in the first quarter of 2012, we reached an agreement to purchase two radio stations in Tulsa, Oklahoma and entered into a local marketing agreement to operate the stations, effective on March 26, 2012.  Results from our interactive media assets are included in our broadcasting and publishing segments.  Our publishing segment consists of the Milwaukee Journal Sentinel, which serves as the only major daily newspaper for the Milwaukee metropolitan area, and several community newspapers and shoppers in Wisconsin.  Our corporate segment consists of unallocated corporate expenses and revenue eliminations.  

Revenues in the broadcast industry are derived primarily from the sale of advertising time to local, national, and political and issue advertisers, retransmission fees and, to a lesser extent, from barter, digital revenues and other revenues.  Our television and radio stations are attracting new local advertisers through the creation of new local content and programs that combine television or radio with digital.  Because television and radio broadcasters rely upon advertising revenue, they are subject to cyclical changes in the economy.  The size of advertisers’ budgets, which are affected by broad economic trends, affects the radio industry in general and the revenue of individual television stations, in particular.  Our broadcasting business continues to experience an uneven economic recovery across the markets in which we operate due to continued challenges in employment and the housing markets.  Our broadcasting business also is affected by audience fragmentation as audiences have an increasing number of options to access news and other programming.  Television advertising revenue and rates in even-numbered years typically benefit from political and issue advertising because there tends to be more pressure on available inventory as the demand for advertising increases and we have the opportunity to increase average unit rates we charge our customers.  Even-numbered years also benefit from Olympics related advertising on our three NBC affiliates.  The expected increased ratings during the Olympic time period, in the third quarter of 2012, as well as the additional available inventory, for our three NBC affiliates provides us the opportunity to sell advertising at premium rates.

Over the past several years, fundamentals in the newspaper industry have deteriorated significantly.  Retail and classified run-of-press (ROP) advertising have decreased from historic levels due in part to department store consolidation, weakened employment, automotive and real estate economics and a migration of advertising to the internet and other advertising forms.  Circulation declines and online competition have also negatively impacted newspaper industry revenues.  Additionally, the continued housing market downturn has adversely impacted the newspaper industry, including real estate classified advertising as well as the home improvement, furniture and financial services advertising categories.

Revenue from our broadcasting businesses increased $2.3 million in the first quarter of 2012 compared to the first quarter of 2011. This is primarily due to a $1.2 million increase in national advertising revenue, a $0.5 million increase in local advertising revenue, a $0.4 million increase in political and issue advertising revenue and a $0.4 million increase in retransmission revenue, partially offset by a $0.2 million decrease in other revenue.  The increase in national advertising revenue was driven by communications, financial and media categories.  The increase in local advertising revenue was driven by automotive, furniture and electronics, and legal categories.  Total expenses from our broadcasting business increased $1.6 million, or 4.2%, in the first quarter of 2012 compared to the first quarter of 2011, primarily due to an increase in employee related costs as well as contractual increases in network affiliation fees.  These increases were partially offset by a charge recorded in 2011 for the expected loss from the broadcast rights fee of a sports contract.  Operating earnings from our broadcasting business increased $0.7 million in the first quarter of 2012 compared to the first quarter of 2011, primarily due to an increase in advertising revenue, partially offset by an increase in operating expenses.

In the first quarter of 2012, our publishing businesses continued to be impacted by the uneven economic recovery and the secular and cyclical influences affecting the newspaper industry.  We have seen advertisers reduce their spending in virtually all advertising categories.  In addition, the first quarter of 2011 included $0.7 million of advertising revenue related to the Green Bay Packers postseason games and Super Bowl victory.  Retail advertising revenue decreased $2.4 million in the first quarter of 2012 compared to the first quarter of 2011, primarily due to a decrease in ROP and preprint advertising primarily in the finance/insurance, communications, food and entertainment, and building categories.  Classified advertising revenue, primarily automotive and employment categories, also decreased in the first quarter of 2012 compared to the first quarter of 2011.  Interactive advertising revenue of $2.6 million decreased 1.6%, primarily due to a decline in classified advertising revenue that more than offset increases in sponsorship and other online revenue.  National advertising revenue decreased $0.3 million in the first quarter of 2012 due to a decrease in ROP advertising in the health and entertainment categories.  In the first quarter of 2012, the Milwaukee Journal Sentinel introduced a digital subscription program, or “paywall,” on our jsonline.com website.  Integrated into the launch of the paywall was a price increase to our home delivery subscribers, who gain full access to all digital products with their subscription fee.  However, circulation revenue was down $0.3 million in the first quarter of 2012 compared to the first quarter of 2011 driven by comparisons to increased sales in 2011 when the Green Bay Packers were in the Super Bowl which more than off-set price increases tied to the launch of our digital subscription program.  At our daily newspaper, commercial delivery revenue was essentially flat year-over-year and commercial printing revenue increased $0.3 million, or 13.0% in the first quarter of 2012 compared to the first quarter of 2011.  Total expenses at our publishing businesses decreased $2.7 million, or 6.7%, in the first quarter of 2012 compared to the first quarter of 2011 primarily due to decreased newsprint consumption and delivery costs and expenses related to the Florida-based community newspapers and shoppers businesses sold in the second and third quarters of 2011, partially offset by an increase in employee benefit costs.  Operating earnings at our publishing businesses decreased $1.1 million in the first quarter of 2012 compared to the first quarter of 2011.  The decrease in operating earnings was primarily due to the impact of the decrease in advertising revenue.

 
22


Advertising revenue at our publishing and broadcasting businesses reflects continued cautious behavior of both our customers and consumers.  While we are seeing some improvement at our broadcasting business, persistent high unemployment, lack of strong economic growth and continued economic uncertainty in an election year temper our optimism.  Revenue levels in our broadcasting business will continue to be affected by increased competition for audiences.  We do not expect that revenues at our daily newspaper will return to revenue levels reported in 2011 or prior years given the secular changes affecting the newspaper industry.

In 2012, we will seek in-market growth opportunities in traditional or digital media, make capital investments in our businesses which we expect to positively impact revenue, and look for new acquisition opportunities within broadcast.  Our acquisition strategy will hinge upon our ability to identify strategic candidates, negotiate definitive agreements on acceptable terms and, as necessary, secure additional financing.  The agreement to purchase two radio stations in Tulsa, Oklahoma is consistent with one of our strategic goals of creating additional broadcast scale in existing markets.

Results of Operations

First Quarter Ended March 25, 2012 compared to the First Quarter Ended March 27, 2011

Our consolidated revenue in the first quarter of 2012 was $82.3 million, a decrease of $1.6 million, or 1.9%, compared to $83.9 million in the first quarter of 2011.  Our consolidated operating costs and expenses in the first quarter of 2012 were $49.1 million, a decrease of $0.4 million, or 1.0%, compared to $49.5 million in the first quarter of 2011.  Our consolidated selling and administrative expenses in the first quarter of 2012 were $27.5 million, a decrease of $0.9 million, or 3.0%, compared to $28.4 million in the first quarter of 2011.

The following table presents our total revenue by segment, total operating costs and expenses, selling and administrative expenses and total operating earnings as a percent of total revenue for the first quarter of 2012 and the first quarter of 2011:

   
 
   
Percent of
          Percent of  
   
 
   
Total
          Total  
   
2012
   
Revenue
   
2011
   
Revenue
 
   
(dollars in millions)
 
                         
Revenue:
                       
Broadcasting
  $ 44.4       53.9 %   $ 42.1       50.2 %
Publishing
    38.0       46.1       41.8       49.8